5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period ended July 31, 1998
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission File Number: 0-18146
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
(Exact name of registrant as specified in governing instrument)
Delaware 13-3293754
(State of organization) (IRS Employer
Identification No.)
2 World Trade Center, New York, NY 10048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212)
392-1054
Former name, former address and former fiscal year, if changed
since last report: not applicable
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
July 31, October
31,
1998 1997
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,505,850 $
1,967,110
Real estate, at cost:
Land 8,823,904
10,023,904
Buildings and improvements 55,274,320
72,927,556
64,098,224
82,951,460
Accumulated depreciation 13,979,352
20,484,407
50,118,872
62,467,053
Real estate held for sale - 11,941,818
Investments in joint ventures 7,561,896
24,127,982
Deferred leasing commissions, net 345,297
799,948
Other assets 1,439,934
2,486,957
$61,971,849
$103,790,868
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 603,633 $
652,515
Security deposits 75,844
156,945
679,477
809,460
Partners' capital (deficiency):
General partners (8,418,200)
(8,453,230)
Limited partners ($500 per Unit, 534,020 Units issued)
69,710,572 111,434,638
Total partners' capital 61,292,372
102,981,408
$61,971,849
$103,790,868
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED INCOME STATEMENTS
Three and nine months ended July 31, 1998 and 1997
<CAPTION>
Three months ended Nine
months ended
July 31, July 31,
1998 1997 1998 1997
<S> <C> <C> <C>
<C>
Revenues:
Rental $1,547,430 $2,644,590 $
5,622,816 $ 8,155,685
Equity in earnings of joint ventures 794,779
638,392 18,659,794 3,047,319
Interest 22,977 27,409
220,152 223,860
Other 81,966 25,481
344,664 66,418
Gain on sale of real estate 10,807 -
15,727,536 -
2,457,959 3,335,872
40,574,962 11,493,282
Expenses:
Property operating 246,819 852,367
1,811,132 2,593,627
Depreciation 377,929 857,060
1,400,743 2,388,219
Amortization 13,057 82,410
83,977 237,571
General and administrative 269,906 241,860
701,605 758,408
907,711 2,033,697
3,997,457 5,977,825
Net income $1,550,248 $1,302,175
$36,577,505 $ 5,515,457
Net income allocated to:
Limited partners $1,431,438 $1,171,957
$36,200,109 $5,056,867
General partners 118,810 130,218
377,396 458,590
$1,550,248 $1,302,175
$36,577,505 $5,515,457
Net income per Unit of limited
partnership interest $ 2.68 $ 2.19 $
67.79 $ 9.47
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
Nine months ended July 31, 1998
<CAPTION>
Limited General
Partners Partners Total
<S> <C> <C>
<C>
Partners' capital (deficiency)
at November 1, 1997 $111,434,638
$(8,453,230) $102,981,408
Net income 36,200,109
377,396 36,577,505
Cash distributions (77,924,175)
(342,366) (78,266,541)
Partners' capital (deficiency)
at July 31, 1998 $ 69,710,572
$(8,418,200) $ 61,292,372
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended July 31, 1998 and 1997
<CAPTION>
1998
1997
<S> <C>
<C>
Cash flows from operating activities:
Net income $ 36,577,505 $
5,515,457
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,400,743
2,388,219
Amortization 83,977
237,571
Gain on sale of real estate (15,727,536)
- -
Equity in earnings of joint ventures (18,659,794)
(3,047,319)
(Increase) decrease in operating assets:
Deferred expenses (409,177)
(140,731)
Other assets 799,892
1,042,527
(Decrease) increase in operating liabilities:
Accounts payable and accrued liabilities
(90,307) 9,101
Security deposits 24,564
(1,661)
Net cash provided by operating activities
3,999,867 6,003,164
Cash flows from investing activities:
Proceeds from disposition of real estate 40,487,606
- -
Additions to real estate (908,072)
(426,544)
Investments in joint ventures (589,792)
(524,264)
Distributions from joint ventures 35,815,672
20,932,789
Net cash provided by investing activities
74,805,414 19,981,981
Cash flows from financing activities:
Cash distributions (78,266,541)
(25,184,661)
Increase in cash and cash equivalents 538,740
800,484
Cash and cash equivalents at beginning of period
1,967,110 2,380,612
Cash and cash equivalents at end of period $ 2,505,850 $
3,181,096
See accompanying notes to consolidated financial statements.
</TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Notes to Consolidated Financial Statements
1. The Partnership
Dean Witter Realty Income Partnership III, L.P. (the
"Partnership") is a limited partnership organized under the
laws of the State of Delaware in 1985. The Partnership's
fiscal year ends on October 31.
The financial statements include the accounts of the
Partnership, Part Six Associates and Laurel-Vincent Place
Associates Limited Partnership on a consolidated basis. The
Partnership's interests in Taxter Corporate Park, Tech Park
Reston and the partnership which owned an interest in
Chesterbrook Corporate Center were accounted for on the
equity method.
The Partnership's records are maintained on the accrual
basis of accounting for financial reporting and tax
reporting purposes.
Net income per Unit of limited partnership interest amounts
are calculated by dividing net income allocated to Limited
Partners, in accordance with the Partnership Agreement, by
the weighted average number of Units outstanding.
In the opinion of management, the accompanying financial
statements, which have not been audited, include all
adjustments necessary to present fairly the results for the
interim period. Except for gains on sales of real estate
(see Note 2), such adjustments consist only of normal
recurring accruals.
These financial statements should be read in conjunction
with the annual financial statements and notes thereto
included in the Partnership's annual report on Form 10-K
filed with the Securities and Exchange Commission for the
year ended October 31, 1997. Operating results of interim
periods may not be indicative of the operating results for
the entire year.
2. Real Estate
On November 7, 1997 the Partnership sold the Holcomb Woods
property to an unaffiliated party for $19,112,500. The
purchase price was paid in cash, and the Partnership
received proceeds, net of closing costs, of approximately
$18.7 million. November 26, 1997 the Partnership
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Notes to Consolidated Financial Statements
distributed these net proceeds ($35.06 per Unit) 100% to
Limited Partners.
On April 1, 1998 the Partnership sold the land and buildings
which comprise the Glenhardie Corporate Center III and IV
properties ("Glenhardie III and IV") and an affiliated
partnership sold its interest in the remaining properties at
Glenhardie Corporate Center. In addition, the Partnership,
another affiliated partnership and an affiliate of the
Managing General Partner sold the Chesterbrook Corporate
Center, in which the Partnership has a 26.7% interest
through a joint venture, to an unaffiliated entity. The
aggregate price of the properties sold was approximately
$168 million, of which approximately $22.1 million was
allocated to Glenhardie III and IV, and approximately $126.1
million (of which the Partnership's share is approximately
$33.7 million) was allocated to the Chesterbrook Corporate
Center. The purchase price was paid in cash at closing.
The Partnership received proceeds, net of closing costs and
other deductions, of approximately $22 million and $33.4
million, respectively, for the sale of the Glenhardie III
and IV properties and its share of the proceeds from the
sale of the Chesterbrook Corporate Center. On April 14,
1998, the Partnership distributed $56.1 million ($105.09 per
Unit) of net proceeds from the sale of the Glenhardie III
and IV properties, its share of the proceeds from the sale
of the Chesterbrook Corporate Center and from the remaining
proceeds from the sale of the Technology Park property. The
distribution was paid 100% to Limited Partners.
Pursuant to the sale agreement, escrows were established for
the costs of certain building improvements and tenant
improvements (the "Improvements"). In addition to payment
of the purchase price, at closing the purchasers deposited
into these escrows approximately $3.9 million, of which
approximately $2.3 million relates to the Chesterbrook
Corporate Center. Any balances remaining in the escrows
relating to the Chesterbrook Corporate Center after the
Improvements are completed will be delivered to the
Partnership. If the costs of Improvements at Chesterbrook
Corporate Center exceed the escrow established therefor, the
Partnership, through DWR Chesterbrook Associates, will be
required to fund the excess costs.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Notes to Consolidated Financial Statements
3. Related Party Transactions
An affiliate of the Managing General Partner provided
property management services for five properties as well as
for five buildings at the Chesterbrook Corporate Center.
The Partnership incurred management fees of approximately
$195,000 and $190,000 for the nine months ended July 31,
1998 and 1997, respectively. These amounts are included in
property operating expenses.
Another affiliate of the Managing General Partner performs
administrative functions, processes investor transactions
and prepares tax information for the Partnership. For the
nine months ended July 31, 1998 and 1997, the Partnership
incurred approximately $386,000 and $476,000, respectively,
for these services. These amounts are included in general
and administrative expenses.
As of July 31, 1998, the affiliates were owed a total of
approximately $57,000 for these services.
4. Litigation
Various public partnerships sponsored by Dean Witter Realty
Inc. (including the Partnership and its Managing General
Partner) were defendants in a class action lawsuit. On July
17, 1998, the Delaware Chancery Court granted the
defendants' motion to dismiss the complaint in the lawsuit.
The Plaintiffs filed a notice of appeal from the Court's
order.
5. Subsequent Distribution
On August 31, 1998, the Partnership paid the third quarter
cash distribution of $1.50 per Unit to the Limited Partners.
The total cash distribution amounted to $890,033, with
$801,030 distributed to the Limited Partners and $89,003 to
the General Partners.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership raised $267,010,000 in a public offering of
534,020 Units which was terminated in 1987. The Partnership
has no plans to raise additional capital.
The Partnership purchased, directly or through a partnership
interest, six office properties and five retail properties.
Through July 31, 1998, five office and three retail
properties have been sold. The Partnership's acquisition
program has been completed. No additional investments are
planned.
On November 7, 1997, the Partnership sold the Holcomb Woods
property. (See Note 2 to the consolidated financial
statements). On November 26, 1997 the Partnership
distributed $18.7 million ($35.06 per Unit) of net proceeds
from the sale, representing a return of invested capital.
The distribution was paid 100% to Limited Partners. Net
income from the Holcomb Woods property for the first quarter
of 1998 was $6,225,708 (including gain on the sale of the
property of $6,190,263). Cash flow from operations for the
first quarter of 1998 was approximately $130,000.
On April 1, 1998, the Partnership sold the Glenhardie III
and IV properties and the Chesterbrook Corporate Center
joint venture sold its property investment. (See Note 2 to
the consolidated financial statements). On April 14, 1998,
the Partnership distributed $56.1 million ($105.09 per Unit)
of net proceeds from the sale of the Glenhardie III and IV
properties, its share of the proceeds from the sale of the
Chesterbrook Corporate Center and from the remaining
proceeds from the sale of the Technology Park property. The
distribution was paid 100% to Limited Partners. Net income
from the Glenhardie III and IV properties and the
Partnership's equity in earnings from the Chesterbrook
Corporate Center joint venture for the nine months ended
July 31, 1998 was approximately $10.1 million (including
gain on the sale of the properties of approximately $9.5
million) and approximately $17.9 million (including gain on
the sale of the property of approximately $17.0 million),
respectively. Cash flow from operations from the Glenhardie
III and IV properties and the Partnership's share of the
Chesterbrook Corporate Center were approximately $918,000
and $1,126,000, respectively.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
As a result of the sales of the Glenhardie III and IV
properties and the Chesterbrook Corporate Center, the
Partnership reduced the quarterly distribution from $1.97
per Unit to $1.50 per Unit, beginning with the May 1998
distribution.
The joint venture which owns the Taxter office property is
currently marketing the property for sale, and the Managing
General Partner will market the Laurel Lakes Centre and
Westland Crossing shopping centers for sale during the
fourth quarter of 1998. However, there can be no assurance
that these properties will be sold.
The Partnership's liquidity depends upon cash flow from
operations of its properties and expenditures for building
improvements, tenant improvements and leasing commissions.
During the nine months ended July 31, 1998, all of the
Partnership's properties and joint venture interests
generated positive cash flow from operations, and the
Partnership anticipates that its remaining properties will
continue to do so for the remainder of fiscal 1998.
In addition, the Partnership's liquidity has been and will
continue to be affected by the sale of properties. As the
Partnership has fewer income-producing investments,
Partnership cash from operations will decline, as will
Partnership distributions. The Partnership will also
require less cash reserves to fund capital expenditures and
leasing commissions.
During the nine months ended July 31, 1998, excluding
proceeds and distribution amounts relating to property
sales, the Partnership's cash flow from operations and
distributions received from its joint ventures exceeded
distributions to investors, capital expenditures, leasing
commissions and contributions to joint ventures.
During the nine months ended July 31, 1998, the Partnership
incurred approximately $1,317,000 of tenant improvements,
building improvements and leasing commissions primarily
relating to the Glenhardie property. The Partnership also
contributed approximately $339,000 to the Chesterbrook joint
venture and approximately $251,000 to the Taxter joint
venture, for its share of capital expenditures and leasing
commissions.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
As of July 31, 1998, the Partnership has commitments to
contribute approximately $106,000, its share of capital
expenditures and leasing commissions to the Taxter Corporate
Park joint venture. The Partnership,
through DWR Chesterbrook Associates, may also be required to
fund certain costs at the Chesterbrook property. (See Note 2
to the consolidated financial statements).
In August 1998, the Partnership signed a new lease with
Michaels Stores, Inc., for approximately 18% of the space at
Westland Crossing; the lease is expected to be effective
July 1999. Under the terms of the lease, the Partnership
has commitments to fund approximately $1,100,000 of tenant-
related capital expenditures and leasing commissions. The
Partnership expects to fund approximately 30% of these
expenditures from cash reserves and the remainder from
proceeds from property sales.
The Partnership may incur material capital expenditures to
lease vacant space at the Laurel Lakes Centre shopping
centers. The amount of such expenditures is uncertain at
this time. To the extent that the vacant space at the
property is not re-leased, the Partnership's cash flow will
be reduced.
During the remainder of 1998, the Partnership expects that
its cash flow from operations and distributions received
from its joint ventures will exceed distributions to Limited
Partners (other than distributions of net proceeds from
property sales). The Partnership expects to fund a portion
of capital expenditures, leasing commissions and
contributions to its joint ventures from cash reserves and
proceeds from future property sales.
Except as discussed herein and in the consolidated financial
statements, the Managing General Partner is not aware of any
trends or events, commitments or uncertainties that may
materially impact liquidity.
On August 31, 1998, the Partnership paid the third quarter
distribution of $1.50 per Unit to the Limited Partners. The
total cash distribution amounted to $890,033 with $801,030
distributed to the Limited Partners and $89,003 to the
General Partners.
Operations
Fluctuations in the Partnership's operating results for the
three- and nine-month periods ended July 31, 1998 compared
to 1997 were primarily attributable to the following:
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Rental revenues, operating expenses and depreciation and
amortization decreased during the three- and nine-month
periods primarily due to the sale of the Holcomb Woods and
Glenhardie III and IV properties in the first and second
quarter of fiscal 1998, respectively. Property operating
expenses also decreased during the third quarter because of
the recovery of approximately $335,000 of rents receivable
from a tenant at Laurel Lakes Centre which had previously
been reserved.
The increases in equity in earnings of joint ventures during
the three- and nine-month periods are primarily due to the
sale of the Chesterbrook Corporate Park.
Other income increased during the nine months ended July 31,
1998 compared to 1997 primarily due to lease termination
fees received at the Glenhardie properties and Laurel Lakes
Centre.
A summary of the markets in which the Partnership's
properties are located and the performance of each property
is as follows:
Recently, the overall vacancy level in the office market in
Westchester County, New York, the location of Taxter
Corporate Park, decreased from 17% to 14%; however, the
vacancy level in the west Westchester market in which the
building is located increased from 9% to 13%. Market rental
rates are currently stable and there is little new
construction in this market. During the nine months ended
July 31, 1998, occupancy at the property remained at 100%.
Leases aggregating approximately 11% and 31% of the
property's space are scheduled to expire in 1999 and 2001,
respectively.
Laurel Lakes Centre is located in a suburb of Baltimore and
Washington, D.C., where retail centers continue to
experience strong competition. The market vacancy is
approximately 16% with rental rates increasing slightly.
During the third quarter of 1998, occupancy at the property
increased to 73%. No leases for significant amounts of space
expire before 2005.
Westland Crossing is situated outside downtown Detroit in an
overbuilt market with a current vacancy rate of
approximately 13%. During the third quarter of 1998,
occupancy at the property remained at 68%. In August 1998,
the Partnership signed a new 10-year lease, for
aprpoximately 18% of the property's space, with Michaels
Stores, Inc.; this lease is expected to be effective July
1999. No leases for significant amounts of space expire
before 2006.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Inflation
Inflation has been consistently low during the periods
presented in the financial statements and, as a result, has
not had a significant effect on the operations of the
Partnership or its properties.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On July 17, 1998, the Delaware Chancery Court
granted the defendants' motion to dismiss the
complaint in the Consolidated Action. The
plaintiffs filed a notice of appeal from the
Chancery Court's order on August 14, 1998.
Item 6. Exhibits & Reports on Form 8-K
(a) Exhibits.
An exhibit index has been filed as part of this
Report on Page E1.
(b) Reports on Form 8-K.
None.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
DEAN WITTER REALTY INCOME
PARTNERSHIP III, L.P.
By: Dean Witter Realty Income
Properties III Inc.
Managing General Partner
Date: September 14, 1998 By: /s/E. Davisson Hardman, Jr.
E. Davisson Hardman, Jr.
President
Date: September 14, 1998 By: /s/Charles M. Charrow
Charles M. Charrow
Controller
(Principal Financial and
Accounting Officer)
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Quarter Ended July 31, 1998
Exhibit Index
Exhibit No. Description
27 Financial Data Schedule
E1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Registrant is a limited partnership which invests in real estate, and real
estate joint ventures. In accordance with industry practice, its balance
sheet is unclassified. For full information, refer to the accompanying
unaudited financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JUL-31-1998
<CASH> 2,505,850
<SECURITIES> 0
<RECEIVABLES> 995,129
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 61,971,849<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 61,292,372<F2>
<TOTAL-LIABILITY-AND-EQUITY> 61,971,849<F3>
<SALES> 0
<TOTAL-REVENUES> 40,574,962<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,997,457
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 36,577,505
<INCOME-TAX> 0
<INCOME-CONTINUING> 36,577,505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,577,505
<EPS-PRIMARY> 67.79<F5>
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in real estate of $50,118,872, investments in joint ventures of $7,561,896,
net deferred expenses of $345,297 and other assets of $444,805.
<F2>Other Stockholders' Equity represents partners' capital.
<F3>Liabilities include accounts payable and accrued liabilities of $603,633,
and security deposits of $75,844.
<F4>Total revenue includes rent of $5,622,816, equity in earnings of joint
ventures of $18,659,794, interest of $220,152, other revenues of $344,664 and
gain on sale of real estate of $15,727,536.
<F5>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
